Inflation seen at 6-month high of 3.6% in Sept

India’s retail inflation likely edged up in September, driven by higher salaries of government employees as well as the impact of the goods and services tax (GST), a Reuters poll found, a development that would make further monetary policy easing unlikely.

Consumer inflation is fo­r­ecast to have risen to 3.60 per cent in September from a year ago, above August’s 3.36 per cent, the poll of 36 economists showed. The data will be released on Thu­r­sday at 12 noon.

If the September number matches the poll consensus, inflation would be the highest in 6 months – yet still below RBI’s mid-term target of 4 per cent. A recent hike in house rent allowances for government staff, coupled with staggered price hikes by firms adjusting to the new national tax, contributed to price rises, said Sonal Var­ma, chief India economist at Nomura.

The new tax, introduced July 1, caused disruptions to business activity in the manufacturing and services sectors that were still recovering from the government’s move late last year to scrap high-value banknotes.

Annual economic growth dropped to a three-year low of 5.7 per cent in the April-June quarter, raising calls for further monetary policy easing by RBI. But in a recent interview, RBI governor Urjit Patel said although economic growth was a constant co­n­sideration for RBI, it would not take pre­c­e­dence over its inflation target.

While leaving interest ra­t­es on hold at its October rate-setting meeting – the first after a cut in August – RBI cut growth estimates and raised inflation projections for FY17.

A Reuters poll last month showed RBI will hold borr­o­w­ing costs steady well past 2018 amid weak economic growth and signs inflation may soon overshoot its target. Wholesale prices are forecast to have risen 3.41 per cent in September from a year ago versus 3.24 per cent in August, the latest poll found. It also predicted industrial production rose 2.4 per cent in August, up from July’s 1.2 per cent growth.

“These could be taken as early signs that the industrial sector is gradually coming out of the disruptive impact of demonetisation and (the) GST,” wrote Rupa Rege Nitsure at L&T Financial Servi­c­es in a note to clients. “Go­ing ahead, industrial prod­u­ction growth prints may not sustain at the same level,” Nitsure said.